A discussion at the Wits School of Governance on Monday on the idea of a wealth tax for SA came in a week interesting for at least two reasons. One was the release by Statistics SA of a report on poverty that shows that income inequality as measured by the Gini coefficient has improved just a fraction, from 0.72 in 2006 to 0.69 in 2011 and 0.68 in 2015.
At least it’s not worse, but that doesn’t make it good. At this level, SA remains one of the world’s most unequal societies. And when it comes to wealth inequality, estimates are that the Gini is an extraordinary 0.95 – making SA an almost perfectly unequal society.
This was also a week in which it began to be clear just how short of money Finance Minister Malusi Gigaba is likely to find himself as he crafts the October medium-term budget, with indications that revenue collections could fall as much as R50bn short of February’s budget targets. The public purse was already under pressure and now the search for new sources of tax is likely to be even more intense. So, would a wealth tax plug the revenue gap? And would it reduce inequality?
On the first question, the answer is a loud no. International evidence suggests SA would do well to collect even 1% to 2% of its tax take through a wealth tax, so, no more than R10bn to R30bn at most. That is in large part because SA is so unequal: there simply aren’t that many wealthy people.
Nor has the tax proved to be a "pot of gold", with several countries including India, having abandoned wealth taxes in recent years. Judge Dennis Davis, whose tax committee called for public submissions on a possible wealth tax in April, is emphatic that the tax is not the "silver bullet" for revenue many of those who have made submissions imagine. But speaking at Wits this week, he put a strong case for the tax nonetheless, based mainly on SA’s high level of wealth inequality, the power that wealth confers and questions of political legitimacy.
"We have got to have something. We can’t leave vast swathes of wealth to be utterly immunised from tax," he said.
Wits dean of commerce, law and management Imraan Valodia made what he called the "abundantly clear" political case, based on the way in which SA’s wealth inequality is a product of its history, which needed to be tackled.
However, he drew an economic link, arguing that SA would not get the social stability it needed for sustainable growth unless it grappled with inequality.
So if a wealth tax couldn’t be relied on to raise much revenue or do much about inequality, what’s the point?
But there is, it seems, no answer on the second question of whether a wealth tax would indeed reduce inequality in SA. The research hasn’t really been done. Crucially, you couldn’t ask the question about the tax side of the national budget alone — you would have to ask whether the government was spending the money in ways that reduced inequality.
It’s conceivable, especially in this environment of corruption, state capture and sheer state incompetence, that any additional revenue raised would take from the rich but do nothing for the poor, and do very little to narrow the wealth gap. That’s one of the dangers speakers flagged at Wits, with Valodia raising questions too about the independence and capability of the revenue service.
Then there’s the critique from the left, put by the Wits governance school’s professor of economics and public finance, Pundy Pillay, that a wealth tax is a populist ploy that would divert attention from the task of making the fundamental changes in SA’s economic growth path needed to address inequality.
So if a wealth tax couldn’t be relied on to raise much revenue or do much about inequality, what’s the point? One point is simply that at a time when the fiscus is this cash-strapped, any bit of extra revenue counts. SA already has wealth-type taxes, such as estate duty, transfer duties and local rates and taxes, and the committee is looking at whether to expand those.
But it is also looking at possible new taxes levied directly on wealth, however defined. One case made for that is the data the tax authority would collect on taxpayers’ ownership of assets would enhance the authority’s effectiveness in collecting other taxes.
Whether the benefits of raising a wealth tax outweigh the costs and risks is the question the committee will have to ask itself once it has processed the unprecedented 375 submissions.
This is a toxic political environment for such a discussion. It’s one in which the legitimacy of the South African Revenue Service and the trust taxpayers have in it are not what they were, and in which many taxpayers are feeling less comfortable handing over additional tax cash to a public sector that is seen to be routing ever more of it to a well-connected elite at the expense of the poor.
Would a wealth tax be just another way of attacking those "white monopoly capitalists"? Or would it be a genuine effort to tackle inequality, one that wealthy people could buy into? It’s surely a quandary for the committee. Peculiarly, Davis and his colleagues might end up accused of populism by the left and right.
• Joffe is editor-at-large.
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